Egypt: Too big to bail!

An interesting assumption is continuously being adopted by many of Egypt’s intelligentsia as well as political analysts: “Egypt is too big to fail!” Several people have weaved their own theories touting Egypt’s strategic position and weight in the region which will make it unwise for the “powers that be” to allow it to descend into chaos or fail. A much bigger problem is that the Egyptian leaders and policymakers seem to operate on the premise that the country is indeed too big to fail.

Now, how accurate are those assumptions? For starters, Egypt has been descending into chaos for the past two years and is as close to failure as it gets. In order to put these assumptions in perspective, the question becomes a matter of mere perception as to what do we define failure to be. So let us attempt to reshape our definition of “failure”.

The term “failed state” is often used to depict a state seen as having failed at some of the basic conditions and responsibilities of a sovereign government. United States think tank the Fund for Peace characterises failed nations by social, political, and economic failure. The Fund for Peace also publishes its annual Failed States Index in which Egypt has deteriorated from the 45th position in 2011 to the 32nd position in 2012 placing it alongside the Democratic Republic of the Congo and Sierra Leone.

Some of the typical characteristics of failure as denoted by The Fund for Peace include a central government which is weak or ineffective that it has little realistic control over much of its territory, deteriorating public services, widespread corruption and criminal activities, and steep economic decline. Sounds like home?

The writing is on the wall with regards to this steady decline with evidence showing that Egypt is going deeper into the dreaded failed zone. Last week, Standard & Poor’s (S&P) further cut Egypt’s sovereign debt rating deeper into junk territory citing unrelenting concerns about the fiscal health of the Arab world’s most populous nation. The agency has lowered Egypt’s short-term rating from B to C and long-term credit rating from B- to CCC+ amidst worries about the country’s inability meet its financial obligations. S&P noted: “We expect financing pressures to remain elevated and comprehensive donor support, including support from the International Monetary Fund, to remain elusive.”

A few hours later, The International Monetary Fund (IMF) echoed similar concerns by saying that Egypt’s financial situation is deteriorating and that IMF will not proceed with the $4.8bn loan until receiving updated economic information and reform plans from Egypt’s government. With an anaemic growth rate of 2% and unemployment rate amongst the younger population reaching 30%, the reality is grim.

To keep the ship afloat, Egypt requires outside help in the tune of $25bn per year. Who is going to fund this? So far, the total aid package coming from the US, Qatar, Saudi Arabia, Libya and from elsewhere in the world did not surpass the $12bn mark. There is also considerable doubt that anyone is able or willing to bankroll this steady and unyielding decay.

Without a plan nor the will to deliver one, the fact that Egypt is the region’s peace keeper or most strategically placed nation will not be enough to rescue the situation in Egypt. In the absence of such a plan, the country might just become one of the most remarkable cases of a politically induced economic failure seen in recent history. The numbers indeed suggest that while some might think that Egypt is “too big to fail”, it might just be “too big to bail”.